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Deere Plummets on Earnings Miss and Weak Guidance

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Deere’s earnings fail to meet estimates

Deere (DE) announced its fiscal 2019 second-quarter earnings results before the market opened on May 17. The company reported adjusted EPS of $3.52, an increase of 12.1% YoY (year-over-year).

In the second quarter of fiscal 2018, the company’s adjusted EPS were $3.14. Its EPS failed to meet analysts’ expectation of $3.61. This was the fifth consecutive quarter during which Deere failed to meet analysts’ expectations.

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Deere’s adjusted EPS growth was fueled by increased revenue and lower SG&A (selling, general, and administrative) expenses as a percentage of its sales. Deere’s SG&A expenses for the quarter stood at $946.9 million, which represented 9.2% of its equipment revenue. Deere’s SG&A expenses made up 9.6% of its equipment revenue in the second quarter of fiscal 2018. The difference implies a YoY reduction of 40 basis points.

Guidance and stock price reaction

Deere now expects its net income for fiscal 2019 to be ~$3.3 billion compared to its earlier guidance of $3.6 billion. The outlook has disappointed investors and is reflected in DE’s stock price. On the day that Deere announced its second-quarter earnings results, its stock fell 7.65% and closed at $134.82. On the same day, Caterpillar (CAT), AGCO (AGCO), and CNH Industrial (CNHI) fell 3.04%, 4.25%, and 2.5%, respectively.

Investors can indirectly hold Deere by investing in the iShares MSCI Global Agriculture Producers ETF (VEGI), which holds 13.7% in Deere as of May 20.

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